We don’t see a clear subsidy exit plan

Over the years, Bangladesh has subsidised critical sectors such as fuel, fertiliser, and other highly import-dependent commodities.

What is at the policy level cannot be changed overnight. This is because when prices increase in the international market, the government has no other way but to offer subsidies to keep the price stable in the domestic market.

But we do not see a clear subsidy exit strategy. We did not see any such plan before either. Moreover, this time we see that the pressure of subsidies is increasing.

If subsidies account for 1.9% to 2% of the GDP when our tax-to-GDP ratio is around 9%, we cannot increase expenditure in many other important sectors. This is definitely a strain on the economy and this is not desirable.

Although it has been said that prices will be adjusted gradually later, we expected there would be an exit plan in the medium term. Maybe, this will not be achieved in a year, but eventually, this is how the government can reduce the burden of subsidies.

The government can also reduce expenses by gaining efficiencies on subsidised products.

A large portion of government subsidies goes to the fossil fuel sector. In this budget, we do not see anything about the transition to more renewable energies, although the government is committed to enhancing the use of renewable energies and reducing use of fossil fuels. There are several reasons including subsidies and the environment to think about this.

What we see is an attitude of allocating money and maintaining that in the name of subsidies. We perhaps will see in reality that the allotted subsidies will not be reduced, rather they will only keep increasing. And, if the government cannot generate enough revenue, we may see expenditure reduction in other crucial sectors.

In the revised budget for the current fiscal, the size of the outlay was reduced from 17% of the GDP to 15%. Like this year's reduction in the development budget by Tk17,000 crore, it is the development sector that always sees allocation cuts.

On the other hand, we keep maintaining the current expenditure and non-development sector which is non-negotiable. The government actually has no chance of reducing this. It needs an overhauling that we have been saying for years. But we did not see any departure this year as well.

Besides, it is not clear how the garment sector gets subsidies. Our export is around $50 billion, and the RMG sector contributes more than $40 billion to this. Then, why would we keep subsidising such an established sector? We should focus on how to improve the business environment, and reduce business costs instead. Why subsidy? So, there is a scope for rationalisation.

However, you have to provide subsidies to some critical areas like fertiliser and agricultural productions. There is a space for prioritisation as well.

In terms of fuel, you will see, it is true that our poor people use transport, it has not been rationalised over the years, and it happens in a way that the richer section actually gets the privilege of subsidy. There is a big scope for rationalisation here.

Experts are talking about this at various times – how the price can be brought to a reasonable stage by generating efficiency, and reducing the subsidy. But instead of walking the tougher rope, we tend to chase the easy route of allocating money. But, this money could have been used better in a different sector, including social protection.

Selim Raihan is Executive Director of Sanem